Mises Wire

"Free" College Comes at a Price

When governments subsidize goods and services — or provide them directly through government-owned institutions — the effect is to lower the price to consumers, thus increasing demand.

Put another way: if the price of, say, a college education is near-zero to the consumer, then consumers are likely to demand a college education in much higher numbers than if the price were higher.

The same principle, of course, holds in health care or any other good or service. If junk food were "free" to everyone in America, Americans would be even more rotund than they already are. Unfortunately, many have already learned this from experience with food stamps .

In a market-based system, goods and services are demanded in accordance with the prices of goods available. If the price of a college degree is very high, then demand will be small. If providers want to sell their services to more people, they must find a way to provide the service at a lower price. Fortunately, goods are not homogeneous, and the history of capitalism is one in which entrepreneurs have sought tirelessly to provide a wide variety of substitute goods at a wide variety of price levels. While it's true not everyone can afford a BMW, a great many people can afford a Toyota, which for many of us, are sufficiently safe, and sufficiently reliable.

On the other hand, if providers can gain access to the taxpayers' dollars via taxation, then they need not drive down the costs of providing the service in order to drive down prices. Providers can simply collect taxpayer funds via the public purse, and not bother with finding ways to deliver goods and services more cheaply.

This is done in a roundabout way with subsidized student loans in the US, for example. Colleges can simply keep hiring more administrative staff, increasing pay for staff and faculty, and building expensive and stylish new facilities with lavish amenities.

Were it not for the subsidized loans and — in the case of public colleges — directly subsidized tuition, the number of students able to afford such degrees would shrink considerably. Colleges would then be left scrambling to cut costs, or simply go out of business. Employers would then adjust accordingly to the available workforce.

But, as it is, many colleges and universities can simply keep raising prices to cover the the salaries of their latest batch of "diversity officers" and idle faculty members who teach one or two classes between lengthy seasonal holidays and sabbaticals.

How to Control Costs in an Interventionist Economy

In the absence of price signals in an unhampered market, there are, of course, other ways to control costs. But they involve government regulations, caps, and mandates.

In the health care arena, for example, many welfare states deal with rising health care costs by refusing care. After all, if government healthcare administrators were unable to refuse care, the cost of "free" health care would quickly spiral upward. This is why, in places with government-controlled health care, wait times are longer, access to diagnostic tools is more limited, and many procedures — most often for the old and infirm — are simply refused. If demand is not limited by price, it will be limited by administrative fiat.

But what about in the case of "free" higher education? In situations where the price of a college degree is near-zero, it is obviously also necessary to control costs.

How is this done?

The first and easiest thing to do is limit the number of students with admissions standards. This can be done by raising requirements for test scores and mandated course work completed prior to enrollment at a higher education institution.

How this is done varies considerably from place to place. Germany, for example, employs a number of fairly robust admissions requirements.

Other jurisdictions are more liberal about admissions, however. But this leads us to a second means of limiting enrollment: high dropout rates.

In France, for example, making life difficult for students has been a time-honored method of controlling enrollments. Observers speak of "overfilled auditoria, high dropout rates, and fierce competition among students." Class sizes of 1,500 people are not uncommon.

As one group of researchers noted: "The accessibility of French universities — both from an admissions and financial perspective — paradoxically has had negative consequences on students. In 1968, French Minister of Education Alain Peyrefitte compared undergraduate life in France to 'organizing a shipwreck to see who can swim.'"

It appears that little has changed since then.

Nor is this experience specific to France. Many European universities — especially in jurisdictions where education is "free," appear uninterested in catering to the students:

European universities do not feel compelled to spend millions on amenities that have nothing to do with education, such as athletics, climbing walls, and the like. European students see campuses as places to go to study, not to find a spa-like infrastructure.

Or, as Marketplace observed about the ultra-low tuition University of Cologne: "There are no active student clubs, or big football stadium. And every lecture hall looks huge."

And these "huge" lecture halls reflect the sort of personalized education you're bound to get at one of these low-priced institutions. That is, you're likely to get no personalized service at all. One student recalls:

“Most of the time you don't even know who is sitting next to you or who your professor is ... You just listen and then reproduce your knowledge during the exams.”

But, this is all part of a strategy to control costs. Marketplace quotes German professor Frieder Wolf who notes :

"This is not to complain. I love my job and I have a lot of freedom but this is how we keep costs down — larger classrooms,” Wolf says. “We’ve got courses with 40 participants, 50 participants in the social sciences, where [American universities] might have tutorials of four or five students.”

As one University of Cologne alumnus put it , referring to a lack of interaction between student and faculty: "The University of Cologne was founded in 1388, and the pedagogy seems to stem from medieval times as well."

This isn't to say, of course, that no education is to be found at any of these institutions. The German model, by the Germans' own admission is “reliable quality" and they often achieve this goal — even if that means a stripped-down version of what many people (i.e., British and American students) think of as "the college experience."1

We can contrast these systems with American higher education which is far more open, fluid, and customer-oriented.

After all, virtually anyone can go to college in the US at a junior college or community college where tuition is a mere fraction of what it is at the posh liberal arts schools where many students take out huge loans to attend all four years. Class sizes also tend to be quite small at these 2-year colleges where course credit can also later be transferred to 4-year institutions.

Not surprisingly, we see these realities reflected in the enrollment numbers by country.

Enrollment in higher education is significantly higher in the United States than in the zero-price education zones of France and Germany.2

Issues of overcrowding, inaccessible faculty, and a lack of amenities do not affect only current students, of course. These factors also act as a disincentive to students who may conclude they are unprepared for the hyper competitive atmosphere of these universities. These factors thus act as a de facto means to turn away many potential students before they even enroll. All of this helps to keep costs down.

At this point, a skeptic might say "well sure, pretty much any American can go to college, but how many of those people actually graduate? Aren't many students just taking classes without ever attaining a degree??

By this measure, also, the US outpaces many of its peers as well. 45.7 percent of adults have completed post-secondary education, while the totals in Germany and France are only 28 percent and 34 percent, respectively.3

But this brings us to a second objection: Americans graduate more because American schools are too easy.

This may be true but there's no actual data to support this theory one way or the other. Moreover, it does not follow that a high-incidence of passing marks suggests excessive ease. It is certainly possible that high grades can be due to "grade inflation" or excessive ease. Or they may be due to a higher quality of instruction and more personalized attention from faculty. After all, a professor who teaches a class where half the students flunk out isn't necessarily delivering a high quality product. He may simply be an inept educator who is incapable of properly motivating and teaching the students the subject matter.

In any case, the fact remains that many jurisdictions with ultra-low tuition rates do not enroll or graduate students on a level with many jurisdictions — such as the US and UK — where tuition is regularly charged to students.

Keeping Down the Cost of Living

Another factor at work here is the issue of the cost of living. These do not represent cost-cutting the part of the higher-ed institutions themselves — but they do affect the affordability of higher-ed programs overall.

In the comparisons on enrollment and graduation above, we saw that Sweden, for example, has enrollment rates and degree-attainment rates on a level with France and Germany. And, like France and Germany, Sweden has no-tuition institutions.

The problem Swedish students, encounter, however, is a high cost of living.

In an article titled "The High Price of a Free College Education in Sweden," the author notes that although there is no tuition at institutions like the Royal Institute of Technology in Stockholm, the cost of living isn't exactly low. Thus, Swedish students that get a "free" education also take out loans to go to school in their capitol city, which is one of the most expensive in the world:

[S]tudents there still end up with a lot of debt. The average at the beginning of 2013 was roughly 124,000 Swedish krona ($19,000). Sure, the average US student was carrying about 30% more, at $24,800.

But in comparing to American students, we have to also note that half of American students graduate with debt while "85% of Swedish students graduate with debt." The author continues: "Worst of all, new Swedish graduates have the highest debt-to-income ratios of any group of students in the developed world."

But what makes debt a bigger problem for Swedish students than students elsewhere? Part of it is due to the fact that fewer Swedes live at home than is the case in much of Europe.

And living at home is a key strategy in keeping college costs down. Although tuition costs are extremely low in many European jurisdictions, the fact remains that going to college requires giving up wages for a time, while also continuing to pay for living expenses.

As Marketplace's report on German Universities notes: "Students in Germany also tend to stay local, so there aren't any dorms."

In fact, a lack of dorms is fairly common at European universities, and this is partly in response to the fact that many college students live at home.

In Germany, for instance, 84 percent of people in the 18-24 age group still live with parents. The numbers are much lower in Sweden — 47 percent — which partly explains why Swedish students have more debt.

In America, of course, moving out in order to attend college is often assumed to be an important part of the "college experience." But it also drives up costs considerably. And for many, it's an unnecessary cost. Americans overwhelmingly live in a metropolitan areas where four-year colleges offer a variety of degrees. Yet many American students choose to move to distant, and often more expensive, environs to pursue a degree.

"Free" Isn't Free

We often hear about how college is free almost everywhere in the so-called developed world — except in America. Given that relatively few jurisdictions offer true tuition-free degree programs, this claim isn't even true on its own terms. The United Kingom, for instance, re-instated college fees twenty years ago after a period of no-tuition. But in those jurisdictions that do have ultra-low-tuition or no-tuition policies, costs must nevertheless be controlled. Many areas do this by limiting enrollment, either by limiting those who qualify, or by practicing "weeding-out" policies that drive out students who don't perform well with large class sizes and inattentive faculty. These free colleges often also often lack the sorts of amenities that students in the US have now grown accustomed to. Moreover, many families routinely employ lifestyle strategies that keep costs down, such as living at home during — and immediately after —the years spent at a university.

American higher education institutions and families could implement many of these strategies as well, of course. To look more like their European counterparts, American colleges could greatly increase class sizes, lower faculty salaries, lay off college administrators, and gut student-union club facilities. Likewise, more young people could live at home and attempt the local polytechnic to get that non-specific bachelors degree that so many Americans attend colleges to obtain. Making all these changes is quite possible, but such changes would also make it clear that a "free" education doesn't come without costs.

1. It's worth noting that German college students are not without student debt, although it's at smaller levels than US students. According to the 2017 Credit Suisse global wealth report: "In the United States, 37% of those aged 20–29 in 2013 had some student debt, which accounted for 18% of the total debt of that age group. In Germany, 12% of those in the same age group had student debt and it accounted for about 6% of total debt." (http://publications.credit-suisse.com/index.cfm/publikationen-shop/research-institute/global-wealth-databook-2017-en/)